I'm very confused about story progression. I thought that if I turned it off, my sims would only age if I was playing their lot. (It obviously didn't do that, and therefore I missed my first CAS sim's death.. ): ) What exactly does turning off story progression do? And if you turn aging off, does that apply to the whole neighborhood, or just the lot?

Aging is pretty self-explanatory...you've turned off aging in your neighborhood and no one gets any older. That doesn't mean the neighborhood stops evolving...story progression is the basis of people moving in and out of the neighborhood and such. It's completely seperate from aging. If you turn off story progression, everyone still ages, they just don't randomly move in and out of the neighborhood. You can always turn off both. :D

not by default as TS3 is not designed to be played like that
you might want to check out awsomemod and indie stone story progression mods
which have lot selective features, not sure if they'll do what you want them to though.

again the whole point of TS3 and the seamless neighbourhood is that everyone ages together so altering that maybe difficult

aging is a content of story progression, without story progression the neighbourhood would not age, only the active household will age...without aging, no one in the neighbourhood will age but the story progression will continue...

This was done to give a little more freedom to you to choose how your game functions. The aging check affects ALL Sims including your Sims and neighborhood Sims. Story progression will still try to make interesting changes to the town makeup and management; it just doesn’t have to worry about most Sims dying of old age anymore. If you continue to move in more Sims, the game will grow concerned about overpopulation as usual. When story progression is turned off, the game will not try to cover the management and tweaking actions that occur outside of normal gameplay. Neighboring Sims will still visit community lots, go to their jobs, and visit your Sims. They just won’t move in or out, or change jobs (except if careers need to be fixed for new Sims) or gain weight. If you leave aging on and story progression off, eventually your Sim’s world will be empty of neighboring Sims. Careers will still create “townies” (Sims that “live” in the world, but don’t live in a house) to fix Careers, but they will never move in.